Google’s just announced in their Q3 Reported Earnings that CPCs on Google properties fell 2%, and overall the CPCs have been decreasing in recent years. This is typically pitched as great news to advertisers. Let’s not be fooled though. As I’m sure many of you saw the actual prices of clicks skyrocketing from pennies in the early 2000 to a few dollars per clicks that we see now. Not only 2% drop is nothing, we also have to consider the reported numbers as misleading when we take into account Google’s display properties.
Do the CPCs on Google Search really decrease?
No. Comparing the average CPC isn’t enough anymore. Today, Google’s calculation Google includes millions of other properties, such as mobile apps, YouTube, Shopping, Comparison Shopping Services (CSS) and display network. Since Google’s “Display business” following many acquisitions has been growing rapidly, it isn’t surprising at all that the overall CPCs are showing a downward trend.
CPCs on Search are 426% higher than Display
As reported by Wordstream CPCs on Search ($2.69) are approximately four times higher than CPCs on Display ($0.63). As Google’s Display inventory is growing at a greater pace than the volume of search queries, reporting the overall CPC is misleading. Therefore it’s essential to consider these two channels and their CPCs separately.
Why does the increasing Google Search CPC matter?
The impact of the increasing CPCs on search is massive and it makes the advertising on Google search unprofitable. Let’s look at a relatively positive scenario, where the search CPCs only doubled in 2019 vs. 2009. We know the reality is much worse though! The same campaign with Conversion Rate and Average Order Value intact goes from bringing 80% return on investment to -10%.
At the same time (2009 vs. 2018) Google’s ad revenue went up from 21.89bn USD to 116.32 bn, that’s an increase of 431%. You ad budget continues to contribute to their success, whilst potentially making your campaigns unprofitable.
How do you combat high cost of Google search ads?
By reading this article you’re already part of the niche who understand that the increasing CPCs on search is simply not sustainable for your business. That’s a great first step, but luckily you can do more. I’ve made a quick list of my favourite tactics:
- Pause and audit – A lot of businesses fall in love in paid advertising and after years of campaigning can’t see the wood for the trees anymore. Sometimes the best solution is to stop, invest time to evaluate overall performance and make radical changes. Doesn’t matter if it’s one day or a week – take the time to evaluate your performance, understand cost drivers, challenge existing strategy and calculate how much can you afford to pay before you start again.
- Ignore notifications – 100% of advice received from Google Account managers and tips inside Google Ad interface lead to more cost. Learn how to say no to all messages that tell you that you’re missing out on so and so many clicks and impressions. It’s time to think for yourself.
- Set ROAS targets – You have to know your profitability threshold for each campaign and the channel as a whole. Remember that if you are outside of the limit, you’re funding Google’s business, not yours.
- Set CPC limits – You need to know how much you can afford to spend on one single click and set a limit to ensure you don’t go over that number, regardless of what your Google advisor tells you.
- Deactivate many nasty features – Google ad interface has turned into a Frankenstein’s monster, it has many hidden features that allegedly help you reach more customers. The list is so long that it probably deserves its own blog post. The reality is that you give up control and cash in return for questionable algorithms that drive your costs up.
- Protect your budget – Understanding your performance is key to allocate budget between keywords, campaigns and channels. I’ve dedicated another article to this subject.
- Independent agencies – If you’re outsourcing your ad management find an independent agency that understands your business and will act in your interest, rather than an agency that works to hit their sales targets at Google.
- Lower brand cost – the cost of protecting your brand clicks have also skyrocketed. Talk to your competitors and implement informal agreements to reduce competition and cost. Another option is to register your trademark, but it tends to be less and less effective these days due to quite broad keyword matching techniques.
- Improve quality score – Ensure you have the right pages, ads and keyword combinations – drive your quality score to at least fractionally lower CPCs.
- Find low cost keywords and locations – Finding low cost & high converting locations can really make a big difference. Most advertisers go for the largest populations in the largest cities. If your product is national, try to advertise in smaller locations and scale the campaign. The same applies to long tail keyword strategies.
- Try other channels – New channels crop up all the time, also in your country or city there could be opportunities that are outside of the Google network. As well as this, Facebook, Instagram, and more recently LinkedIn, have upped their game, particularly when it comes to performance advertising. Another benefit of advertising on social networks is the demographic data that’s available to you to reach your customers. We’ve been achieving some great results with social ads, also in e-commerce campaigns.
I anticipate CPCs to continue to increase and Google to continue to report decreasing CPCs figures as they add more and more properties to the mix. This will create a perfect smoke screen for those clever advertisers who know where to look and how to take advantage of these opportunities. On the other hand, it’s a nice feeling to outsmart a giant such as Google. Let me know in the comments what you think about this topic.